Economic Update

(-) Retail sales for March came in weaker than expected, down -0.4% on a ‘headline’ level as opposed to consensus expectations of a flat reading.  The biggest impacts resulted from a -0.6% drop in auto sales and a -2.2% drop in gasoline sales (is that really bad news?).  Removing auto sales from the equation didn’t change much, with the same -0.4% on identical flat expectations.  The ‘core’/control component experienced a different result, but same magnitude, falling -0.2% versus a forecasted gain of +0.2%.  The latter piece, which excludes several items that tend to be more volatile (such as the auto, gasoline and building materials components) also saw weaker numbers from more stable demand areas such as electronics, department stores and sporting goods, although personal care also dropped a bit.  Why did this happen?  Perhaps some seasonal adjustments, a dose of bad weather and an especially early Easter holiday may have played a role.  These seem small, but it’s things like this that can alter the numbers by as much as a few tenths of a percent—especially in heavily-populated areas where shoppers are concentrated.

(0) Inventory results were mixed for February.  Business inventories rose +0.1%, which lagged the forecasted +0.4% level.  Retail inventories were the primary driver, while auto parts also rose; the ex-auto retail measure, however, was up a bit more, at +0.4%.   Wholesale inventories, by contrast, fell -0.3% month-over month as opposed to an expected +0.5% gain.  Non-durable goods were the catalyst.

(+) The Producer Price Index fell -0.6% in March, which exceeded expectations for a -0.2% drop.  The bulk of this was the result of lower gasoline prices during the month (a drop of -7%, similar to results in retail sales noted above).  The core PPI, which excludes energy and food, rose +0.2% on par with forecast.  Core finished goods PPI rose +0.2%, in line with expected, as did core intermediate prices—these two categories are tracked separately as a way to note changes in input costs along the manufacturing food chain.

(0) Import prices fell -0.5% for March, which was right on target with forecast.  The biggest decline was in petroleum, which fell -2%, but is volatile month-to-month anyway.  Auto parts and consumer goods also fell.  Overall, this just lends more of a backdrop to tempered inflation pressures, as affected from imported items.

(0) The NFIB small business optimism index fell from 90.8 in February to 89.5 in March, which was largely in line with expectations (which were 89.8, technically).  In terms of underlying detail, employers planning to hire additional employees moved from a small positive to neutral on the month, and expectations for sales also dropped off.  All-in-all, monthly changes are fairly noisy, but the general trend of sentiment from business owners ‘expecting the economy to improve’ remained close to -30% (where it has been for some time).  Pessimism continues to reign.  On the other hand, 25% of owners expected to increase capital spending in their own firms.  This isn’t entirely surprising, and is actually a bit of a positive story.  While they’ve been seeing their own conditions improve on a micro level (since the 2008 period), many remain discouraged by macro government and political developments that they feel increasingly disconnected with.  This isn’t unusual.  However, if enough ‘micro’ forces improve, it may eventually outweigh the sentiment regarding the ‘macro’—these shifts tend to happen without anyone realizing it until they’ve already occurred.

(-) The University of Michigan consumer sentiment measure dropped in April, to 72.3, versus an expectation of 78.6.  This is the lowest level in nine months, and is the product of deterioration in consumer opinions of both current conditions and future expectations.  The administrators of the survey noted that government policies were the primary catalyst for pessimism.  However, consumers’ own buying plans for household goods were positive (interestingly, this mirrors the micro- vs. macro- effects seen in the small business surveys noted above).

(+/-) The FOMC minutes for the March meeting were released, and added a bit of clarity to recent policy.  Before the recent slowdown in several economic measures, it appeared the group may have been leaning toward tapering off purchases toward the end of this year (labor market depending).  However, it appears this timeline may be pushed out a bit further than this, into 2014.  Again, there is continuing debate regarding the benefits and costs of such easing as it continues and such activity may have lesser and lesser impact on the margin.

(+) Initial jobless claims for the Apr. 6 week dropped more than expected, to 346k, relative to the forecasted figure of 360k and reversed the previous week’s rise.  According to the Labor Department, reversal of some seasonal changes accounted for a bit of this (which explains the week-to-week volatility lately), including ‘spring break’ timing effects.  The biggest job losses were in transportation, education service and food service, which seem to coincide with this spring break theme.  The four-week moving average rose to 358k.  Continuing claims for the Mar. 30 week came in at 3,079k, which was a bit lower than the 3,067k expected.

(+/0) The government’s February JOLTS report, which lags the payroll report by a month, showed a strong increase in job openings (3,925k versus a forecasted 3,740k) and rate of hiring (3.2% to 3.3%).  Other ‘job separation’ metrics, such as firings/quits/retirements didn’t change.  The interesting part about the ‘quit’ rate is that an increase can signify more worker confidence in the economy and employment prospects—in fact, FOMC officials have commented on this measure in that way.

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